TCS posts 3.2% se­quen­tial rise in Sep quar­ter dol­lar rev­enue

Mint ST - - CORPORATE - BY VARUN SOOD feed­back@livemint.com MUM­BAI

Sub­dued per­for­mance comes in what is sea­son­ally the strong­est quar­ter for the out­sourc­ing in­dus­try

Tata Con­sul­tancy Ser­vices Ltd (TCS)’S quar­terly rev­enue rose 1.7% in con­stant cur­rency terms in the sec­ond quar­ter from the pre­ced­ing three months, lower than al­ready de­pressed ex­pec­ta­tions, but a 150 ba­sis point boost from pos­i­tive cur­rency move­ment and bet­ter op­er­a­tional ef­fi­ciency helped the com­pany re­port a 3.2% se­quen­tial in­crease in dol­lar rev­enue, al­low­ing it to beat an­a­lysts’ es­ti­mates in the July-septem­ber pe­riod.

Nonethe­less, it marks the 12th straight quar­ter when In­dia’s largest soft­ware ser­vices com­pany has ei­ther un­der­per­formed or at best man­aged to match an­a­lysts’ es­ti­mates in con­stant cur­rency terms.

One rea­son for this pro­longed un­der­per­for­mance is its cur­rent size. TCS, which ended the Septem­ber quar­ter with $4.74 bil­lion rev­enue, now does more busi­ness in a three-month pe­riod than Tech Mahin­dra Ltd, In­dia’s fifth largest IT ser­vices firm, did in 2016-17.

Still, a sub­dued per­for­mance in what is sea­son­ally the strong­est quar­ter for In­dia’s $154 bil­lion out­sourc­ing in­dus­try masks the op­ti­mism ex­pressed by the man­age­ment of TCS, as there are plenty of wor­ries ahead for the com­pany and for the in­dus­try.

A 3.2% growth on the back of 3.1% in the first quar­ter means TCS added $594 mil­lion in in­cre­men­tal rev­enue in April-septem­ber, higher than the $544 mil­lion in new busi­ness in the same pe­riod of the last fis­cal year. TCS added $1.03 bil­lion in new rev­enue in 2016-17 to re­port a 6.2% growth.

In the cur­rent fis­cal year, the firm needs to add $1.09 bil­lion in in­cre­men­tal rev­enue to match that pace. This means TCS will have to re­peat its im­proved per­for­mance in the first half of the year in the com­ing six months for it needs to add $496 mil­lion in in­cre­men­tal rev­enue in the sec­ond half of the year, com­pared to $486 mil­lion in Oc­to­ber-march last year.

In the Septem­ber quar­ter, the com­pany re­ported dol­lar rev­enue of $4.74 bil­lion, a 3.2% rise from the pre­ced­ing three months and up 8.3% from the year-ago pe­riod.

In ru­pee terms, sec­ond-quar­ter rev­enue im­proved 3.2% to Rs30,541 crore from the pre­ced­ing three months. TCS’S quar­terly profit rose 8.4% se­quen­tially to $1 bil­lion, up 1.6% from $984 mil­lion in the year-ago pe­riod.

TCS im­proved its op­er­at­ing mar­gin by 170 ba­sis points se­quen­tially to 25.1% from 23.4% in the April-june pe­riod but was 90 ba­sis points nar­rower than 26% at the end of year-ago pe­riod. A ba­sis point is one-hun­dredth of a per­cent­age point.

A Bloomberg sur­vey of an­a­lysts had es­ti­mated the com­pany to re­port Rs6,283.5 crore ($961.36 mil­lion) profit on net sales of Rs30,501.6 crore ($4.667 bil­lion).

“TCS de­liv­ered a rel­a­tively strong Q2,” said Ra­jesh Gopinathan, who took over as chief ex­ec­u­tive of­fi­cer in Fe­bru­ary af­ter N. Chan­drasekaran was ap­pointed chair­man of Tata Sons Ltd. “Over­all from fi­nan­cial per­for­mance per­spec­tive, it has been a very sat­is­fy­ing quar­ter con­sid­er­ing the op­er­at­ing en­vi­ron­ment we are in.”

TCS’S per­for­mance in the sec­ond quar­ter, com­ing on the back of a 3.1% growth in the first quar­ter, was driven largely by a 5.3% con­stant cur­rency rise in rev­enue from clients in con­ti­nen­tal Europe, which brings about 12.5% of to­tal rev­enue.

Some of the com­pany’s other smaller in­dus­try-serv­ing units did well too: travel and hos­pi­tal­ity saw an 8% se­quen­tial jump, while en­ergy and util­i­ties saw a 7.2% rise. Both th­ese di­vi­sions ac­counted for 8% of TCS’S over­all rev­enue.

But that was not enough con­so­la­tion for an­a­lysts.

“In your sea­son­ally strong­est quar­ter, TCS man­aged only a 1.7% se­quen­tial con­stant cur­rency growth. This shows that some­thing is not right and the com­pany is strug­gling. Yet, the man­age­ment re­mains bullish. Now, how much more can the com­pany grow in the sec­ond half of the year, should again tell you if there is any merit to be­lieve in the man­age­ment’s op­ti­mism,” said a Mum­baibased an­a­lyst at a for­eign bro­ker­age, on con­di­tion of anonymity.

The chal­lenges ahead for TCS in­clude the weak per­for­mance in the US and soft de­mand from clients in the bank­ing, fi­nan­cial ser­vices and in­sur­ance (BFSI) space.

The US, which ac­counted for 51.9% of TCS’S sec­ond quar­ter rev­enue, re­ported a 1.4% growth over the June quar­ter, and a 3.6% growth from the year-ago pe­riod. BFSI, which ac­counted for a third of TCS’S rev­enue, re­ported a 1.9% se­quen­tial con­stant cur­rency growth and just 4.7% growth from the year-ago pe­riod.

Some oth­ers fret­ted about the weak­ness plagu­ing its all-im­por­tant BFSI arm.

“Ra­jesh (Gopinathan) con­tin­ues to claim that the com­pany’s BFS in Europe did well. So, does this mean that US BFSI re­ported no growth or at-best mar­ginal im­prove­ment? This is wor­ry­ing be­cause this means there are mul­ti­ple banks or clients who for rea­sons not known are ei­ther hold­ing back tech spend or de­fer­ring,” said an­other Mum­bai-based an­a­lyst at a do­mes­tic bro­ker­age who also de­clined to be named.

The com­pany’s work­force in­creased by 3,404 peo­ple to 389,213 em­ploy­ees at the end of Septem­ber, af­ter de­clin­ing by 1,414 in the June quar­ter.

ANIRUDDHA CHOWDHURY/MINT

TCS chief ex­ec­u­tive Ra­jesh Gopinathan.

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